Bank of Japan stands pat, says economy bottoming

V.Phani Kumar

HONG KONG (MarketWatch) — The Bank of Japan on Thursday left its policy interest rate and the size of its asset purchases unchanged, and said the domestic economy now appears to have stopped weakening.

The widely-expected decision to leave the policy interest rate in the 0 to 0.1% range was taken by a unanimous vote.

However, the central bank’s monetary policy-setting board differed on a proposal by member Ryozo Miyao to leave the rate at the current level indefinitely.

The board defeated by a 8-1 majority Miyao’s proposal to leave the policy at the current level until the Bank of Japan’s 2% price-stability target — adopted by the bank at its last meeting in January — was judged to be in sight.

“Japan’s economy appears to stop weakening. Exports continue to decrease, but the pace of decrease has been moderating,” the Bank of Japan said in a statement delivering its policy decisions.

“Japan’s economy is expected to level off more or less for the time being, and thereafter, it will return to a moderate recovery path as domestic demand remains resilient, partly due to the effects of various economic measures, and overseas economies gradually emerge from the deceleration phase,” the statement said.

The central bank’s decision came just a few hours after data released by Japan’s Cabinet Office showed the domestic economy contracted 0.1%, or by an annualized rate of 0.4%, in the fiscal third quarter ended Dec. 31. Read more about Japan’s GDP data.

The language employed in the central bank’s latest statement differed from the its statement issued in January, which had said the country’s economy “remains relatively weak.”

The central bank had previously said that it would increase the size of its asset purchases to 101 trillion yen ($1.08 trillion) by the end of 2013, from about ¥65 trillion at the end of last year.

Despite its recently adopted price-stability target of 2%, the central bank continues to expect year-on-year changes in the consumer price index to remain around 0%.

The Bank of Japan also mentioned a “high degree of uncertainty” related to the local economy, and reiterated its aim to achieve the 2% price-stability target “at the earliest possible time,” without setting a specific time-frame to reach that goal.

Even so, some analysts remained optimistic for stronger monetary easing to materialize once a new governor is appointed to the central bank.

Incumbent Bank of Japan Gov. Masaaki Shirakawa recently said he planned to step down in March, a few days before his current term expires.

“For new policy moves, we will have to wait for the new governor to be appointed,” Kim Eng Securities director of sales-trading Andrew Sullivan said in Hong Kong.

Japanese stocks retained their gains in choppy trade after the central bank’s decision, with the Nikkei Stock Average
NIK, -0.33%
0.6% higher.

The currency market saw equally choppy movements, though in a tight range. The U.S. dollar
USDJPY, +0.03%
rose back to ¥93.47 following a temporary drop from around ¥93.44 immediately after the Bank of Japan statement was released. The dollar was fetching about ¥93.42 in North America late on Wednesday.

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